Spain’s Energy Crisis: Why Free Solar Can’t Fix High Bills

Across the globe, a strange phenomenon is taking over the energy sector: electricity prices are falling to zero, or even turning negative. While countries like Spain, Australia, and Germany are breaking records for renewable production, the average household is often left wondering why their monthly bill hasn’t budged—or has even increased.

The Spanish VAT Trap

Spain is a prime example of how government policy can swallow consumer savings. When the wholesale price of electricity drops due to a surplus of solar and wind power, a legislative “tripwire” is triggered.

If the monthly average price falls below €45/MWh, the Government automatically increases the VAT (IVA) from the discounted 10% back to the maximum 21%. Essentially, the moment energy becomes cheap enough for you to save money, the tax increase wipes out the benefit.

Global Comparison: Who Actually Wins?

The “Green Energy Miracle” looks very different depending on where you live. While the sun and wind are free, the infrastructure and taxes are not.

Why isn’t the price dropping for you?

There are three main reasons why “zero-euro” wholesale power doesn’t equal a “zero-euro” bill:

• Fixed Costs: A large portion of your bill (up to 60%) consists of “access tolls” and “power terms.” These stay the same even if the energy itself costs nothing.
• The “Duck Curve”: Solar power is free at midday when most people are at work. By the time you get home and turn on the kettle, the sun is down, and expensive gas-fired plants have taken over.
• Grid Maintenance: Moving renewable energy from remote wind farms to city flats is expensive. As we add more renewables, the cost of “balancing” the grid actually goes up.

Lessons from Australia: Free Power for the People?

While Spain struggles with tax hikes, Australia is pioneering a different approach. Recognising that their grid is often “oversaturated” with solar power, the Australian market has introduced “Free Electricity Windows.”

Many Australian retailers now offer plans with free electricity at weekends or during daily surplus hours (usually 11 am–2 pm). Instead of taxing the surplus or wasting it, the system encourages people to do their laundry or charge EVs when the sun is at its peak. This helps balance the grid and actually lowers the cost of living for families—a sharp contrast to the Spanish model.

A Legacy of Legal Defeats and Bureaucracy

To make matters worse for the Spanish taxpayer, the government is currently embroiled in a “legal nightmare” over its handling of the green transition. Years ago, Spain offered generous subsidies to attract renewable energy investors, only to retroactively slash them.

This move backfired spectacularly. International investors sued Spain in global courts, and the International Centre for Settlement of Investment Disputes (ICSID) has repeatedly ruled against the Kingdom. Spain now leads the world in unpaid arbitration awards—totalling over €1.5 billion—putting it in a notorious league alongside Russia and Venezuela for non-compliance. These mounting legal debts, interest, and legal fees are an invisible burden on the state’s finances.

Ultimately, as Spanish government officials continue to squander vast sums on a fat and bloated bureaucratic machine, the consequences of their poor decision-making fall squarely on the public. While normal people support renewables with the sincere hope of one day seeing a lower cost of living, that reality remains out of reach. Instead of being passed to consumers, the “savings” from cheap solar power are eroded by state inefficiency and the costs of losing battle after battle in international courts.

The Late Bloomer: A Remarkable Turnaround

Spain’s current struggle is ironic given its rocky history. For years, the country was a cautionary tale in the renewable world. In 2015, the government infamously introduced the “Sun Tax”, effectively making it illegal for households to generate their own power.

Since the tax was repealed in 2018, however, the turnaround has been miraculous. In just under a decade, Spain has sprinted from a renewable pariah to a European leader, installing over 30 GW of solar capacity. It is a feat of engineering and ambition that few other nations have matched. Yet, technical success has not yet translated into social success.

5 Steps that could Fix the Market for Consumers

To ensure this “Green Miracle” actually benefits the people who pay for it, Spain should consider these six decisive steps:

• Kill the “VAT Trap”: Decouple the tax rate from the wholesale market price. A drop in energy costs should never trigger an automatic tax hike.
• Subsidise Home Batteries: Follow the Australian model by offering direct rebates for home storage, allowing families to store “free” midday sun for the evening.
• Mandate “Free Energy” Windows: Require utility companies to offer “Happy Hour” tariffs (e.g., free electricity from 12:00 to 15:00).
• Simplify “Virtual Batteries”: Cut the red tape for “Virtual Batteries”, allowing consumers to use excess solar value to pay off fixed fees.
• Upgrade Interconnections: Invest heavily in cross-border connections to France to export surplus power for profit, rather than curtail wind generation.

However, rest assured, it’s worse in many other countries.

Average Monthly Electricity Bill (2025–2026)